We have recently run a series of roundtables in the North West region bringing together a number of local law firm leaders to discuss challenges currently being faced in the market.
Open and honest discussions took place and a few key themes were evident.
1. Economic pressure and market competition
More and more, clients are demanding more for less, pushing firms to offer alternative fee arrangements with many moving away from traditional hourly billing. Value pricing is becoming a much more successful way of maintaining fee levels but there can still be challenges with clients understanding the value of the expertise being provided.
Concerns were also raised regarding the more widespread use of AI in providing legal services and the perception of clients that the work hasn’t taken as long to produce so therefore should cost less. This is where we come back to value pricing which needs to incorporate the back office costs of the IT infrastructure in the firm and also take into account the possible improvements to the turnaround time of client matters.
General economic instability was also a topic of discussion with firms sharing the impact it is having on certain sectors, with inflation and interest rates affecting real estate teams and a widespread attitude of “sitting tight” impacting M&A teams.
2. Technology developments
As mentioned above, AI is becoming more and more prevalent in the legal space. Various AI tools that are available are reshaping routine legal work and firms that don’t adapt risk falling behind. But there has to be a balance between innovation and cost, meaning that smaller firms may struggle to keep up with the larger players in the marketplace.
It is clear that the use of AI is on the strategy agenda for most firms but the extent to which it is currently being implemented as part of the day to day is mixed, with some firms striving to develop their own AI tools with others being in the testing phase of “off the shelf” products.
3. Teams
Succession planning has been a hot topic in law firms for a number of years with the younger generation not necessarily striving for the “partner” title and all that that brings. Lifestyle, flexibility and culture are higher on the priority list for those coming through the ranks, meaning firms are having to move away from the traditional law firm model in order to attract and retain the best talent.
In the post-Covid world, hybrid working has become normal practice, but it is clear that firms are now questioning the cost of this and whether this should be the model moving forward. The lack of “learning by osmosis” which naturally happens when working collaboratively in the office is becoming a key concern for law firm leaders with many considering revisiting the balance between working from the office and working from home.
4. Regulatory environment
The regulatory environment was already a heavy burden on law firms, but this is only set to increase in areas such as data privacy and AI regulation. Staying compliant often requires investment in technology, training and specialist team members, thus increasing the operational costs of firms. This area has to play a part in the culture of law firms with everyone taking an active part in ensuring compliance.
Another area being considered by firms is the recent SRA consultation and the potential changes arising from that. Firms are starting to look at what options are available to them should changes to the rules around holding client money come into force.
"The legal landscape is evolving and in order for firms to succeed they need to be on the front foot and the changes need to be embraced. What was clear from the roundtable discussions was that running a law firm is about much more than the law and with pressures from clients, employees and the regulators it is a real balancing act to get it right."
